- The Washington Times - Monday, September 3, 2001

The slowing economy isn't getting the best of Federal Realty Investment Trust.
In fact the Rockville-based real estate investment trust (REIT), which owns or has an interest in 153 real estate properties, plans to add more centers to its portfolio and expand existing ones over the next few years.
The company known locally for shopping centers like Congressional Plaza in Rockville and street retail projects like Bethesda Row, has set out on a mission to create a "sense of place" in communities around the country from grocery-anchored shopping centers to urban mixed-used projects that include everything from public parks and courtyards to specialty retailers and restaurants.
"There's got to be a reason for people to come," says Donald C. Wood, president and chief operating officer at Federal Realty, in an interview with The Washington Times outside his offices located behind Congressional Plaza.
"When you cut through it all, retail real estate is all about people," he says. "The more people you have the better your tenants will do. The better your tenants will do the more rent they will pay. The more rent they will pay the higher the value of the underlying real estate."
Federal Realty has internally split the company between its shopping centers and street retail businesses. Mr. Wood heads up the shopping center division, while Steven J. Guttman, chairman and chief executive of the company, focuses on the street-style retail projects.
Federal Realty's diversification also lies within its retail base, which includes about 2,500 different tenants. That's good news for Federal Realty as many retail tenants that have fallen on hard times are closing up shop.
"Failing tenants are part and parcel to this business," Mr. Wood says. "Our whole mantra is to find those who are least resistant to failing and more importantly giving them an environment … where they have their best chance for success."
However, for those tenants that don't make it, there's usually a line of other retailers that want to take their place, he says.

Expanding value

Federal Realty, which has shopping centers from Boston to Washington and in Chicago, plans to acquire additional properties in those markets over the next couple of years.
And the company isn't through with its existing properties.
For example, Federal Realty recently received the proper zoning approval to add a 145-unit apartment building on the back parking lot of Congressional Plaza, which includes stores like the Container Store, Fresh Fields and Tower Records. Construction will start in four or five months and the property will be available by mid-2003.
"The reason [that] can work here is because of the location, the merchandising, and the Metro stop across the street," Mr. Wood says. "And accordingly it makes our land more valuable than others."
Mr. Wood says Federal Realty's real estate value is not evident in the price of the stock, which trades on the New York Stock Exchange.
"The value of our underlying assets, in my opinion, is far in excess of the stock price," he says.
Federal Realty's shares hit a high during the last 52-week period on Aug. 27 at $23.88 per share. The stock's lowest price during that time hit $18.75 on Oct. 26. The stock closed on Friday at $22.75 per share.
REITs in general have had strong stock performances lately.
The REIT composite index, made up of the 188 publicly traded REITs, has shown a 15.7 percent increase so far this year, says Jay Hyde, a spokesman for the National Association of Real Estate Investment Trusts.
In 2000 when the hot technology stocks began losing their appeal and value the REIT composite index showed an increase of 26 percent.
"It's is one of the few sectors where investors have been able to find a safe haven," Mr. Hyde says.
Federal Realty, which pays out its earnings to its shareholders in the form of a dividend, has increased its dividend rate for each of the last 33 years.
This year the 38-year-old company can expect an 8 percent return to its shareholders provided the annual dividend is at least $1.88 and the stock trades at about $23, Mr. Wood says.
"At a time when the economy is shaky and there's not a lot of attractive places to put money, REITs in general look pretty attractive," Mr. Wood says.
In the second quarter, which ended June 30, Federal's core shopping center portfolio "produced what may prove to be the best same-store performance in the shopping center group" for that quarter, according to an analyst report from Morgan Stanley Dean Witter.

Sweeping the streets

Federal Realty's plans are much more reserved when expanding its street retail business, which now makes up about 25 percent of the company's portfolio.
Currently Federal Realty has completed a little more than half of Bethesda Row 10-year building and redevelopment of several blocks in the heart of Bethesda, that includes everything from Barnes & Noble and Jaleo Restaurant to future tenants like a new prototype of Giant and Mon Ami Gabi, a French steak house.
Some critics say this type of outdoor retail is a fad a trendy hot spot that will eventually lose its luster. Mr. Wood disagrees.
"It's not a fad when you're living in downtown Bethesda and you have restaurants to eat in and you work in the building across the street and you shop on the ground floor," Mr. Wood says. "It wasn't invented … it was reinvented."
Federal Realty's biggest street retail project is on the West Coast called Santana Row, an urban mixed-use neighborhood development in San Jose, Calif.
It will contain 680,000 square feet of retail including Gucci, Armani and Crate & Barrel, as well as residential units, a 214-boutique hotel, plus outdoor cafes, public parks and courtyards.
"I believe that it will become the place to be, because just like Bethesda, there is no place to go to provide this type of atmosphere in an area where there are lots of people with a lot of money," Mr. Wood says.
The risk, however, is that the project was started at a time when the economy was good but now it's being leased into a difficult economy.
"As a result, our returns will not be acceptable to us in the first couple of years for that project," Mr. Wood says. "But as long as we stuck to the right location and the right merchandising it's a matter of timing."


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